Will Sanctions Actually Tighten Oil Supply, or Will It Be Business as Usual?
The International Energy Agency (IEA) has recently projected that tightened U.S. sanctions on Russia and Iran could significantly disrupt these countries' oil supply chains, potentially affecting the global market. Despite this, the agency expects non-OPEC+ production, driven by countries like Angola, Indonesia, and Qatar, to outpace demand growth, maintaining a surplus in 2025.
The IEA forecasts global oil supply growth of 1.8 million barrels per day (mb/d) this year, with non-OPEC+ contributing 1.5 mb/d.
To assess the potential impact of the new sanctions, let's examine the current production landscape:
As of December 2024, world oil supply was approximately 103.5 mb/d, as reported by IEA itself. OPEC+ production includes OPEC members and non-OPEC member countries that participate in the organisation's initiatives such as voluntary supply cuts, including among others Russia. According to S&P Global, in March 2024, OPEC+ output was around 41.25 mb/d.
If we count only Russian, Iranian, Venezuelan production, we will see that in March 2024, Russian oil production was approximately 9.42 mb/d, and lowered to 7.33 mb/d in December 2024.
Finding specific recent production figures for Iran and Venezuela is harder, as both countries have been sanctioned for a long time now, but still contribute significantly to the oil supply. In 2023 it reached at least 0.75 mb/d for Venezuela, and 3.62 mb/d for Iran.
Given these figures, if sanctions significantly disrupt the combined output of Russia, Iran, and Venezuela, non-OPEC+ “non-sanctioned” OPEC+ producers would need to increase their output accordingly.
IEA's current projection that non-OPEC+ production is set to rise by 1.5 mb/d in 2025, reaching 54.6 mb/d, doesn’t look like something impossible.
In addition, interruption of approximately 11% of global output should create a substantial effect, potentially even causing alarming panic in the crude oil market, pushing even highly expensive Northern oil production into a desired profitability realm.
Yet again, market dynamics rarely follow straight-line forecasts. OPEC has the power to adjust supply to maintain price stability, and non-OPEC+ producers may not ramp up output if it’s not in their strategic interest.
Ultimately, the big question isn’t just whether non-sanctioned producers can fill the gap, but whether they will, whether OPEC will permit them to seize the opportunity, and whether a surge in oil price won’t compel oil buyers to consider more affordable options available in the market.
